CEO Column

"The war underway is still a long way from over. Battles still are being lost, but momentum is building and a vision for post war revival is starting to take shape." -Churchill in 1942-

30 October 2020

Dear Colleagues,

The above statement, attributed to Sir Winston Churchill in 1942, was in the Airline Weekly last week. Of course, the horrors of war can in no way be compared to the current COVID-19 crisis, but there is a parallel in the description of the situation.

This month, KLM celebrates its 101st anniversary. Incredible. After “KL2020: Back in the Air” with wonderful KLM colleagues, we can now watch the TV series “Vliegende Hollanders” (“Flying Dutchmen”) about the the founding of KLM in 1919.

A century plus one year. The contrast couldn’t be more stark with how we celebrated our anniversary together with all KLM colleagues a year ago. For the time being, the crisis caused by COVID-19 does not seem to be coming to an end. It’s been nine months since the first infection in Europe on the 25th of January. Within a few days, the first corona-related adjustments to our network were a fact. Since then, KLM has made every effort to keep operations afloat. I am very impressed by the flexibility, commitment and involvement of everyone at KLM and I am very grateful to all KLM colleagues for that.

That the biggest crisis in post-war history is far from over is also evident today in our financial figures for the third quarter. These figures make it painfully clear how COVID-19 has disrupted aviation as a whole and thereby also Air France-KLM. See also the worrisome IATA publications, such as this one. The consequences for society, the economy and aviation are enormous.

"I am very impressed by the flexibility, commitment and involvement of everyone at KLM and I am very grateful to all KLM colleagues for that."

In July and August, the number of infections in Europe was significantly lower. For us as KLM, this was a cautious move in the right direction. Especially on our European network, where 95% of destinations were flown with 60% capacity. At that time, our flights were on average 60 to 70% full. Unfortunately, the recovery was short-lived and the number of bookings has fallen sharply since September.

In the meantime, we have cancelled the expansions for the fourth quarter and due to further cancellations, we have returned to the level we were at in the beginning of summer. In addition to the Netherlands, new far-reaching measures were announced this week in France and other European countries. Europe is going into lockdown again and that is a doomsday scenario for aviation and for KLM.

For the third quarter (July-Sept), Air France - KLM incurred an operating loss of more than €1 billion. Normally the third quarter is the strongest quarter in aviation; for comparison we had a profit of €909 million last year. A deterioration for the Air France - KLM Group of almost €2 billion in one quarter! For KLM the quarterly loss amounted to €234 million, a decline of €745 million. The loss of €234 million includes aid from the NOW government support scheme. Without this support, the loss would have been even bigger; a loss of approximately €6 million per day. At the deepest point of the crisis in April, it was €10 million per day. So, it’s improved a little, but it’s still very bad.

For the first 9 months of this year, Air France - KLM recorded an unprecedented loss of €3.4 billion. For KLM, the loss over the first nine months amounts to €1 billion.

These financial figures underline how incredibly important and necessary the loans are that KLM has taken out to get through this crisis. There are far-reaching conditions attached to these loans. Gratitude and modesty go hand in hand with this. The government has expressed the expectation that KLM will receive a response from the relevant ministers on the related restructuring plans at the end of this month.

The basis agreements with the labour unions were finalised around October 1st. Everyone has done their best to achieve this, underlining the importance of the measures. However, the validity of these new arrangements is shorter than the expected term of the loans. Hence concrete arrangements need still to be reached for the period after these agreements have lapsed. Nevertheless, this is an important step at this time. Important steps have been taken by the labour unions to revise the reduction of working conditions as previously concluded in the collective labour agreements. I sincerely hope that the members of the unions will soon ratify these new agreements. Everyone is making a contribution. That contribution is not the same for everyone. This creates a dynamic in which each person compares their own contribution to that of another, rationalised from their own position. That means everyone is right from their own perspective, but that doesn’t get us anywhere as a whole. Therefore, my urgent appeal to the unions last week; to finalise the outline of the agreements in principle, to accept the mutual differences and to have an understanding of the overall picture. Compromises can only succeed if everyone keeps sight of the general interest and is prepared to contribute to it, even if it is not exactly the same for everybody.

KLM is important to the Dutch economy, which is why we receive loans from the government. This puts us under the public spotlight, making it even more important to keep working together internally and to focus on every contribution needed to achieve recovery. Dividedness among us is bad for everyone, for our reputation and for support in society.

Delayed recovery and second Voluntary Resignation Scheme In earlier communication we explained the necessary reduction in KLM’s size. On the one hand because we will fly less for a longer period of time and on the other because we must decrease costs and increase efficiency.

In my column at the end of July, I indicated that KLM’s size would be reduced by approximately 5,000 jobs. This figure was based on 20% - 25% fewer flights in the summer of 2021. Through a combination of ceasing external hiring, not renewing temporary contracts, the KLM-wide opening of the Voluntary Resignation Scheme, and natural attrition, we have unfortunately already had to say goodbye to many professional and committed colleagues. That really pains me.

Unfortunately, September has been a turning point in the recovery and it appears the recovery will take longer. As a result, we are forced to reverse the further scaling up of production. Our bookings and therefore our revenues are far behind compared to previous years. For the coming winter season, we have been forced to take two Airbus A330s and ten Boeing 737s out of commission and park them in Groningen.

This means we still have a long way to go. We have to consider a further deterioration, which will affect the number of people needed to keep KLM operations going in the coming years. A further 10% reduction in production means a further reduction of 1,500 jobs. I realise this makes the existing uncertainty even greater. For the time being, we are sticking to scenarios we announced at the end of July and submitted to the Works Council by means of requests for advice. It is all the more important to implement them as soon as possible.

As a result of the worsening market conditions, we reopened the Voluntary Resignation Scheme on Monday, 19 October. This time for specific divisions and target groups. In addition to preparing for less production, the aim is to further limit surplus staff now that the detailed restructuring plans for the various divisions have been announced. Yesterday we received the positive confirmation on the requests for advice from the Works Council. We can now start with the implementation phase. I would like to give my compliments to the Works Council for their expeditious and pragmatic approach.

Now that the requests for advice have been submitted, it is clear what the plans are per business unit. This allows KLM colleagues to make a well-considered choice to apply for the Voluntary Resignation Scheme. The second Voluntary Resignation Scheme is open until Monday, November 9th.

Our future -> “From more to better” It is important not only to work on crisis management, but also to work together to build on the KLM of tomorrow. Our customer remains our main focus and we must and will do everything we can to offer our customers a distinctive product that suits our KLM. That’s why we have decided to continue with Premium Economy and thereby introduce a new product between Economy and Business Class. We will also implement direct aisle access in all our Business Classes. A difficult decision, but very important to come out of this crisis stronger. These are important steps to continue to bind our customers to us and with this, we are preparing ourselves for a new future.

The focus and attention on reducing costs remains undiminished. In addition to the central initiatives around, for example, procurement, outstations and fleet, we have had many initiatives and suggestions directly from colleagues. I can’t stress the importance of this enough!

On October 1st we handed over our restructuring plan ‘from more to better’ to Minister Hoekstra and I communicated extensively about the 10 initiatives. As mentioned earlier, the plan is currently being reviewed by the government.

"For KLM the quarterly loss amounted to €234 million."

Cargo division

Last week I boarded the Queen of the Skies, the Boeing 747, a “Cargo in Cabin” flight. We brought 50 tons of medical supplies to the Netherlands from Shanghai. That included 1.3 million facemasks. It was very inspiring to see the dedication and creativity of our colleagues on the ground and in the air. In both the Netherlands and China.

This journey underlines the importance of diversification as part of our business strategy. Despite the difficult circumstances of the past year, Cargo achieved extremely good results. Earlier this year, for the second year in a row, AFKLMP Cargo was named “Cargo Airline of the Year”.

Capacity decreased by 27.5% and yet the revenues within the KLM cargo division increased by 18.5%. Compared to the first nine months of last year, revenue increased by an impressive €168 million. Since March, our cargo colleagues have put their shoulders to the wheel, because “In the midst of difficulty lies opportunity”. And not only they, but also many KLM colleagues from other divisions have rolled up their sleeves to cope with the great demand for airfreight. I would like to give them a big compliment for their efforts and for the results achieved!

"the Boeing 747 Combi, a “Cargo in Cabin” flight."

Last week we also had the last Boeing 747 flights. This time for real. The decision had already been taken earlier in March but considering the special airlift to China with Philips and the Dutch government for medical supplies, we continued for another 6 months.

Given the situation, we have not given this any special attention. Yet it has not gone unnoticed. On social media, in particular, there are many wonderful posts, photos and reactions from customers, flying colleagues and fans of almost 50 years of Queen of the Skies at KLM.

Upcoming period Dear colleagues, the circumstances in which we have to do our work are tough. The focus remains on working safely. Especially where working from home is not an option. These are uncertain times for us and our passengers.

We rely heavily on the return of passengers on board our aircraft for the well-being of our wonderful company. We’re doing everything we can and I have no doubt whatsoever about everyone’s maximum commitment. Unfortunately, there are many external circumstances that determine how quickly the recovery will occur. If the recovery takes longer, we will have to take responsibility and further reduce costs and investments. Company pride has always been a major driving force at KLM. Luckily, we still have that Blue Spirit, I regularly see it around me in the contact with colleagues. Even now, or more so now. No matter how difficult the working conditions may be sometimes, let’s hold on to that spirit and strength and use it to build in the future together.